CFOs and CIOs: Can We Talk?

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Last summer, a joint survey by Gartner and the Financial Executives Research Foundation found that 42% of IT organizations report directly to the CFO. The percentage soars to 60% at smaller businesses with revenues between $50 million and $250 million.

The same survey pointed out that finance chiefs alone authorize 26% of all IT investments, while chief information officers approve only 5%. This makes sense: in tough economic times finance inevitably asserts itself and casts a gimlet eye on spending. In fact, an October 2011 report by CDW, one of the world’s largest technology resellers, said that only 40% of IT decision-makers expect their budgets to rise this winter, down 8% from last year and the lowest level of IT investment increase since October 2009.

Given the oft-unequal CFO-CIO relationship and constrained IT spending, it’s not surprising that the techies seemed more downcast than usual in another poll, CIO magazine’s 2011 “State of the CIO” survey. Only 33% of CIOs believe they’re seen as a “trusted partner or business peer,” and even fewer (31%) see themselves viewed as a “valued service provider.” Only 11% think IT is providing competitive differentiation — again not a surprise, given how cloud computing is propelling IT toward a utility model.

The fact that two out of three CIOs don’t believe that they’re seen as a trusted partner is not good news for CFOs. That’s because to remain competitive, businesses need their top finance and IT managers to maintain a productive relationship.

At CDW, for example, finance chief Ann Ziegler counts herself fortunate to be “surrounded by experts in technology,” she says. By having “the luxury of working with a CIO who is very financially literate,” Ziegler has improved what she calls her own “fluency in technology.” This is critical, she says, because it allows her to allocate scarce resources more knowledgeably.

Tension between finance and IT can lead to what former Taco Bell CIO and Chevys Mexican Restaurants CFO Susan Cramm has called “the schizophrenic CFO-CIO relationship,” in which “the two parties play an ongoing game of chicken, with CIOs asking for more money and CFOs asking for more justification.” At best, such a relationship is organizationally dysfunctional; at worst, it’s an institutionalized competitive disadvantage.

Companies need to be able to do both: identify the next opportunity while determining the appropriate level of investment based on the organization’s current condition. But they can’t do both optimally unless the CFO and CIO are able to talk. To better understand where that conversation can break down, and how to keep it productive, CFO spoke with two CIOs who began their careers in finance.

“Can You Fix It?”

Hyatt Hotels and Resorts CIO Mike Blake was head of capital budgeting at Sears in 2000 when his CFO called him in to his office. Recalls Blake, “The CFO said, ‘You know, Mike, we spend a little less than $800 million a year on IT, and you know what? I don’t really have a good understanding of what we’re spending it on, and our business lines don’t believe they’re paying the right amount. Can you fix it?’”

“Right then,” says Blake, “a new role was created at Sears: director of IT finance.” Blake had studied accounting at the University of Utah and received his MBA in finance and economics from the University of Chicago. But what did he know about IT? “Nothing,” he says. “I broke it down into products and services. You consume this particular application and it costs x dollars per year. What I came up with shocked people.”

For instance, says Blake, “I had a conversation with the head of logistics who was paying $300,000 a year for a system, and he said only three people read the report [produced by the system]. We were able to get rid of it. It was eye-opening.

“Creating that kind of transparency got me excited about IT,” he continues. “Finance is a way of seeing how the business operates through language and numbers. IT is a way of seeing it through transactions. In IT, you can see what’s happening in the business, [and] what will happen, before dollar one hits.”

No More Black Box

Blake says the transparency he worked to create at Sears has become more easily achievable in the cloud-computing model, and that has made it easier for CFOs and CIOs to communicate. “IT is no longer about how you develop and code,” says Blake. “It’s no longer a black box.

“With cloud computing, things are brought down to cost accounting. It’s price p times quantity q equals whatever you’re buying. The CFO deals with p times q all the time. Now, the CIO deals with p times q because, in the cloud, quantities are smaller and prices aren’t as high. IT used to come up with ideas and run it through the solution delivery lifecycle [build, test, deploy], and it could take years. Now you can drop in an app in less than two minutes. No one’s waiting for IT anymore.”

This “fundamental change” in the way IT is practiced, says Blake, should transform both how the CIO manages resources and how the CFO makes IT investment decisions.

“I want my budget to be less year-over-year,” says Blake, who reports to Hyatt’s CFO. “That’s the mind shift that has to happen. I tell people the story of the movie 300. One of the Greek generals meets up with the Spartan king and asks him why he has only 300 soldiers. The Spartan king responds by asking the general how many of his soldiers are farmers, artisans, or herders. All of my 300, the Spartan king says, are soldiers. That’s what you want. You need to get to the right skill set for your organization.”

Blake advises CFOs, for their part, to start asking easy questions, such as how much the company’s e-mail costs. “If your CIO can’t tell you it’s x, y, z per box,” Blake says, “that’s a problem.”

But Blake also suggests that CFOs be patient. “Tell your CIO you’re not looking for year-over-year cost reductions; you’re looking for the enhancement of opportunities with the use of technology,” he says. “That’s sacrilege in the CFO ranks; CFOs are geared to drive down costs. But you can increase the line in technology and decrease other costs. Below a certain level of investment, don’t push so hard on ROI for fear of killing opportunity.”

Today, says Blake, there’s a plethora of opportunities on the IT horizon. In order not to miss them, the CFO and CIO need transparency, and they need to talk.

Beware of CFOs Bearing iPhones

Like Blake, Safety-Kleen CIO Mark Stone has a degree in accounting. From 2003 to 2006, he was vice president of financial planning and analysis at jewelry retailer Zale, where he had his own moment of IT clarity.

“I had sharp disagreements with the CIO,” recalls Stone. “He wanted to move off Oracle Retail to SAP. His bottom-line argument was to change how the merchants worked by implementing SAP Retail with best practices in it. Never implement IT to force process change.

“There was no ROI for the project, and when I became CIO [in 2006], I canceled it,” continues Stone. “I avoided spending $20 million, and went back to Oracle. There are no such things as ‘best practices’; there are only practices that best fit a company.”

Like Blake, Stone sees a fundamental change occurring in the CFO-CIO relationship, but he regards it as less a product of cloud computing and more a result of the consumerization of IT.

“CFOs think that because they’re using iPads and iPhones and have wireless networks in their homes they’re tech savvy, and so they want more say in IT,” says Stone. “The risk is that they may not understand the complexity of enterprise IT. CIOs used to hide everything behind a blizzard of complexity. Today, the CIO’s job is to communicate those risks clearly.”

To do that, Stone emphasizes that CIOs have to be familiar with the CFO’s worldview. “The CFO is a creature of a lean world where every penny needs to be justified by ROI. He’s watching competitors move nimbly; he sees a dynamic world, and the CIO has to see through the same lens.

“And if you’re a CFO and your CIO is not on the same wavelength, find a new CIO,” Stone concludes bluntly. “If you have an operationally sound CIO, you can trust him. If you don’t, you’re back in the same contentious relationship.”

Or, as Susan Cramm puts it: “It’s always about the person, never the title. For both CFO and CIO, the question is always, Is the person the wind beneath your wings, or not?”